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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Hello, and welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon, or you can go to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much discuss it all. Now that said, please remember this is just a show.
Mike:Everything we hear should be considered informational, as in not financial advice. If you want personal financial advice, then request Your Wealth Analysis from my team by going to www.yourwealthanalysis.com. With me in the studio today is my esteemed colleague, mister David Fransen. David, how are you doing today?
David:I'm well. How are you?
Mike:I'm doing well too. David's gonna be reading your questions that you've sent in, and I'm gonna do my best to answer them. Now you can send your questions in right now to 913-363-1234. Again, that's 913 363-1234. Save that number in your phone in case you think of a question later on
David:in the week, or you can email us to hey mike@howtoretyme.com.
Mike:Let's begin.
David:Hey, Mike. Why do you recommend active management for IRAs and Roths and passive management for TOD accounts?
Mike:Okay. First off, let's just reestablish there's no such thing as a perfect investment product or strategy. And to understand why I believe they're different, I I gotta put together an analogy. Let's let's assume you've got a a nice big garden. K?
Mike:Nice fence around the garden. It's protected. K. Craters aren't getting in or anything like that. And you're either planting your tomatoes and your corn and all sorts of things, cucumbers, green beans, whatever.
Mike:And every time you need to work on the garden, you've got to open the gate. The problem, though, is when you go into the garden, a bunch of pesky rabbits get in the garden and eat a part of your crop. And you get in there and you're you're working on it, and as long as you're in there, the rabbits are kind of in there, then
David:you can get them out. Okay? If you knew that every time you were working on your garden, that part of your crop would get eaten, and at the end of the day, you just kinda want the largest yield of your garden possible, how often would you work on your garden?
Mike:Only when you needed to. Yeah. Right? Right. Only when it might be detrimental to the overall yield.
Mike:So maybe a couple of plants got sick, and you've got to take them out so they don't infect the rest of the garden. Maybe it's just time to yield that certain crop, and so you go in
David:there and and then you're done. But you wouldn't be in
Mike:there every single day, only when you needed to. Now let's take the same situation and say that you've got the same nice beautiful garden. You've got your tomatoes and your cucumbers and your radishes and and all the the peppers, all
David:the glorious fruits and vegetables, and rabbits did not exist.
Mike:You could go in there,
David:and you could tend to it as much as you want. You would probably spend more time in the garden. I would. Yeah.
Mike:The same is true when it comes to qualified accounts and nonqualified accounts. So a qualified account doesn't have a rabbit, aka uncle Sam, taxing you every time you make adjustments in the portfolio. There's no capital gains. It's sheltered. Whether it's pretax or after tax, it's sheltered.
Mike:And so I can get more aggressive in the active management of those assets and focus on growth. However, when you look at a TOD account, it's not just the rabbits that you're concerned about. It's not just the capital gains. In many situations, you may create a tax issue that then bleeds over to other parts of your plan. So short term capital gains and all that might be great enough that it's triggering IRMAA issues.
Mike:It might be triggering Social Security tax efficiency issues. Go down the list. It's all connected. And so, in my mind, having a more passive approach to where you only tend to it if it's, like, hey. This stock is just falling off a cliff.
Mike:Got it. Let's just get out of it, and let's move that elsewhere. We'll pay a little bit of tax on just that part, and that's it. But you you take a more warm, buffered approach, and you buy good companies that you can hold for a long period of time. And then in your qualified account, you're more aggressive on let's just let's just grow that sucker.
Mike:That's my opinion on it, and it's because it's not just investments. It's investments, it's tax, it's health care, it's income stream planning, it's legacy planning. Go down the list. Also, with with these nonqualified accounts, the TODs, the the money that's subject to capital gains, I often will find myself using those assets to fill a reservoir. So if if this is your first time hearing a reservoir, it is a strategy we came up with where you have some principal guaranteed accounts, so bonds or CDs, treasuries, for example, not bond funds.
Mike:You've got, fixer fixed indexed annuities, anything that's principal protected. You can put nonqualified assets in there and then not have to worry about these these tax issues as much, But then when the markets go down, you can draw income from them and still maintain a tax efficiency. Overall, it seems to be more efficient from a tax standpoint and from a growth standpoint. If you need assets in a reservoir that's principle protected so that when the markets go down, you draw income from your reservoir while your other accounts have time to recover. That's the idea.
Mike:You don't want to accentuate losses. Then why not use the after tax, the nonqualified assets, in something that's not gonna drum up a lot of capital gains
David:I see yeah
Mike:so a CD a 6 month CD okay yeah you're gonna get pay on the gains on the growth there nothing you can do about it but it's not detrimental it's not gonna destroy the overall plan A 2 year treasury, that's not gonna destroy your overall plan. Fixed index annuities, if you're using them as
David:a bond alternative, they're deferred, so you
Mike:don't pay taxes along the way until you take a withdrawal out, which you can kick that count down later on the road, and that creates a nice window for you to have more room to do IRA to Roth conversions. Go down the list of efficiency, the efficiency. You can implement so many more efficiency strategies in your retirement preparation and while you're retired in preparation for RMDs, in preparation for Medicare, and and trying to avoid IRMAA, and for those that have maybe $1,000,000 or less in Social Security efficiencies and tax efficiencies and so on. So there is a reason that I do believe this. It's really rooted in tax efficiency, and I think it's often missed, especially when you get an adviser that's only gonna do your investments and grow your assets in a singular investment philosophy and not kind of worry about anything else, or you get, you know, the
David:the blinders can create tax problems.
Mike:This is why I think it's a fundamental issue in the industry to have investment advisers, manage your investments and trade and grow, and your CPAs tell you what happened because you're just looking in the rearview mirror of saying, oops. I could have done that better, but I I didn't. I've got a dear friend that's a CPA, and he's got this joke. He says, I've kept track of every financial adviser of all my very wealthy clients and how how many times they have consulted me on a trade that created a tax burden and then you hold up a blank sheet of paper I mean, you don't want to separate your tax planning and your investment planning so that's why I do it I I it's an efficiency you can diversify by strategy. You can diversify by efficiency.
Mike:You can accomplish a lot more. Plus, it's great to buy and hold a stock, in some sense, if they're good companies. Let it grow, and then, whenever you do pass from a legacy standpoint, it goes to your kids Yeah. Without paying taxes. So I should say without paying taxes, there could be a state tax.
Mike:If that's that's done wrong, there could be other things, but capital gains tax is deferred.
David:Okay. Yeah. There you go.
Mike:So if you want to take a look at a probably a more suitable or a more efficient growth portfolio alongside your tax efficiency within your plan, really just review from a tax standpoint your plan, your portfolio, and what's going on. Here's what I want you to do. I want you to text analysis, keyword analysis, to 913-363-1234, or you can go to yourwealthanalysis.com. That's keywordanalysis to 913-363-1234, or go to the website www.yourwealthanalysis.com. And here's what we're gonna do.
Mike:We're gonna review your portfolio. We're happy to review also the potential tax problems that you may be running into in the different phases of your life, whether you're getting close to Medicare, whether you're getting close to 59a half and you can start doing more, or whatever the different tax phases you are, tax seasons, and the optimizations that would be available to you based on your situation. We're gonna be looking at all that because it's not just growth. If we create more efficiency in your plan, you get to keep more of your hard earned money. If we can help you increase your growth potential, that means more money.
Mike:It's not just outgrowing your problems. It's growth with efficiency. You gotta bring them together, and it's all connected. Investments, taxes, you name it, all connected. Now this analysis won't cost you a dime, but it really could be what helps you live a more comfortable life in retirement, all because you took a more efficient and deliberate approach to your retirement plan and portfolio.
Mike:Text analysis right now to 913-363-1234. That's keyword analysis to 913-363-1234, or just go to www.yourwealthanalysis.com to claim this complimentary analysis. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time.
Mike:Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.